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Ogden uncertainty adds to divergent motor pricing

Higher-attaching UK motor liability programmes experienced rate rises of as much as 100 percent at 1 January, as uncertainty about Ogden discount rate reforms made for a challenging renewal, according to Willis Re.

In its 1st View report, the broker noted that 1 January, as well as being a key renewal for motor liability, was also the first renewal since both the shock 3.25 percentage point cut to the discount rate in Q1 2017 and since the government released guidance about Ogden reforms in the second half.

These reform announcements "have generated optimism but not sufficient clarity about timescales or likely final decisions", Willis Re said.

"While rates are clearly increasing, there is significant divergence of market pricing with a lack of consensus among reinsurers about where the Ogden rate is likely to settle in the near future, with a wide variety of assumptions in pricing models."

The report added: "Complexity of market dynamics precludes any simple market average rate change assessment - individual programmes' rate changes have been influenced by attachment point, impact of the Ogden rate change on claims and perceived adequacy of previous years' pricing.

"For programmes with higher attachments, increases of around 100 percent were not atypical."

Willis Re also noted that motor rate rises had been contained by interest from potential new market entrants, while primary carriers had in some cases opted to increase retentions.

In general in the casualty sector, Willis Re noted a slowdown - and sometimes a reversal - of a trend for improved terms and conditions for reinsurance buyers.

"We are hesitant to refer to 2017 as the nadir of reinsurance pricing in all long-tail classes, but at this stage, it appears to be a reasonable description," the report said.

"Further exposure adjusted reductions have become harder and harder for buyers to secure, requiring high hurdle rates about underlying profitability to be overcome. This landscape is driven by deteriorating accident-year results, diminished reserve releases and various territorial specific issues," it continued.

In the US general third-party liability (GTPL) market, Willis Re reported that certain reinsurers pulled back capacity or pushed for better terms on loss-affected contracts, though "buyers with good experience" enjoyed flat renewals.

US GTPL rates on excess-of-loss accounts with loss emergence rose by up to 15 percent, the report found.

In US pro rata motor reinsurance Willis Re noted "mounting downward pressure by reinsurers" on sliding scale commissions, with flat rates for excess-of-loss reinsurance accounts with no losses.

It noted that auto claims frequency and severity remain elevated, mainly because of "distracted driving" due to mobile technology, meaning personal and commercial motor rates have continued to rise.

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